Interim Results
Rathbone Brothers PLC
05 September 2002
5 September 2002
Rathbone Brothers Plc
Interim results for the six months ended 30th June 2002
Pre-goodwill profits up as business continues to grow in spite of market
conditions
Rathbone Brothers Plc, the group which specialises in discretionary investment
management and trust services for private clients, announces interim results for
the six months ended 30th June 2002.
Highlights:
• Profits before tax and goodwill rise by 1.7% to £11.4m.
• Dividend maintained at 10p per share.
• Discretionary funds under management increase by 1.7% to £5.9bn since the
end of December 2001.
• Earnings per share down by 4.4% to 22.39p. This fall is due to the issue
of shares made for acquisitions made in April 2002 and the exceptional
profit in the first six months of 2001.
• Chairman Micky Ingall announces his intention to retire from the board in
May 2003.
Commenting on the interim results, Micky Ingall, Chairman of Rathbone Brothers
Plc, said:
'Our policy of many years to concentrate on wealth management through
discretionary mandates is proving itself in current difficult market conditions.
The Group has no core borrowings, remains profitable and is cash generative. We
are gaining significant new business in our chosen universe and changes taking
place in other investment houses should continue to present us with
opportunities where we will reap the benefits when markets improve.'
Rathbone Brothers Plc (020 7399 0000)
• Micky Ingall, Chairman
• Mark Powell, Managing Director
• Andy Pomfret, Finance Director
Luther Pendragon (020 7618 9100)
• Tim Trotter (Trotter & Co)
• Will Kallaway
Chairman's Statement
I have pleasure in presenting Group figures for the six months to 30th June
2002. Profits before tax and goodwill amortisation amounted to £11.4m, an
increase of 1.7% over the restated result for the same period last year although
earnings per share (before goodwill amortisation) fell by 4.4% to 22.39p from
the equivalent restated figure last year (details of the restatement which is
due to the adoption of a new accounting standard on deferred tax are set out in
Note 7). The fall in EPS is due to the issue of shares for acquisitions made in
April 2002 and the exceptional profit in the first six months of 2001. The
interim dividend is maintained at 10p per share.
In my statement for the year 2001 published in March, I likened growing an
investment management business in 2001 to running up the down escalator and at
the same time expressed cautious optimism for a recovery in both world economies
and stock markets in 2002. These predictions remained relatively intact until
the end of May at which point the downward movement in stock markets began to
resemble a high speed lift rather than an escalator. The depreciation in the
FTSE 100 Index in the six months to 30 June of 11% was accomplished almost
entirely in the month of June.
Despite this significant fall, discretionary funds under management have
recorded a modest increase in the six months of 1.7% to £5.9bn (largely due to
new business) which must be counted as a significant achievement in very
difficult times. Likewise the marginal increase in pre-tax, pre-goodwill profits
is a very creditable effort and these two figures disguise what, in more benign
market conditions, would have been an impressive performance.
Funds in our unit trusts have again grown significantly in difficult market
conditions from £186m at the end of December to £219m at the end of June. We
have received a number of awards for good performance.
The results for the Trust Division, which accounts for 20% of Group operating
income, have been somewhat disappointing. The profit figures have been marred by
a foreign exchange loss on conversion of half year balances and some provisions
against outstanding invoices.
Our policy of many years to concentrate on wealth management through
discretionary mandates is proving itself in current difficult market conditions.
The Group has no core borrowings, remains profitable and is cash generative. We
are gaining significant new business in our chosen universe and changes taking
place in other investment houses should continue to present us with
opportunities where we will reap the benefits when markets improve.
In May 2003, I shall have reached the age of 62 and intend to retire from the
Board. The Board intends to appoint Mark Powell, currently Group Managing
Director, as my successor as Chairman. Roy Morris will continue as Chief
Executive.
Micky Ingall
Chairman
5th September 2002
Consolidated profit and loss account
for the six months ended 30th June 2002
Six months Year
Six months ended ended
ended 30th June 31st December
30th June 2001 2001
2002 (Restated) (Restated)
Unaudited Unaudited Audited
£'000 £'000 £'000
Operating income - continuing operations 42,071 39,134 78,665
Operating costs (31,921) (28,683) (60,406)
Group operating profit 10,150 10,451 18,259
- Group operating profit before goodwill amortisation 11,420 11,231 20,629
- goodwill amortisation (1,270) (780) (2,370)
Net profit on sale of regional office
- continuing operations - 251 381
Group operating profit on ordinary activities
before tax - continuing operations 10,150 10,702 18,640
Tax on Group profit on ordinary activities (3,126) (3,040) (6,494)
Group profit on ordinary activities after tax 7,024 7,662 12,146
Dividends (4,149) (3,618) (9,422)
Retained profit for the period 2,875 4,044 2,724
Earnings per ordinary share
Basic after goodwill amortisation 18.96p 21.26p 33.62p
Basic before goodwill amortisation 22.39p 23.42p 42.15p
Diluted after goodwill amortisation 18.89p 21.06p 33.37p
Diluted before goodwill amortisation 22.31p 23.21p 41.84p
Consolidated balance sheet
as at 30th June 2002
31st
30th June December
30th June 2001 2001
2002 (Restated) (Restated)
Unaudited Unaudited Audited
£'000 £'000 £'000
Assets
Cash and balances at central banks 3,831 5,360 8,083
Settlement balances 16,802 32,563 8,629
Loans and advances to banks 32,289 30,279 38,109
Loans and advances to customers 35,112 30,183 30,207
Debt securities 402,693 347,089 381,525
Equity shares 70 65 70
Intangible fixed assets 39,239 29,182 27,592
Tangible fixed assets 8,013 8,650 8,955
Other assets 5,466 4,193 3,526
Prepayments and accrued income 14,880 13,762 15,146
Total assets 558,395 501,326 521,842
Liabilities
Deposits by banks 981 868 630
Customer accounts 426,199 385,117 416,033
Debt securities in issue 1,034 - -
Settlement balances 15,895 16,151 7,387
Other liabilities 9,243 7,704 9,154
Provision for liabilities and charges 5,192 6,893 5,449
Accruals and deferred income 6,630 6,785 5,742
Called up share capital 1,896 1,809 1,814
Share premium account 8,243 6,584 7,277
Other reserves 37,387 24,817 25,342
Profit and loss account 45,695 44,598 43,014
Equity shareholders' funds 93,221 77,808 77,447
Total liabilities 558,395 501,326 521,842
Memorandum items
Contingent liabilities and commitments 8,084 9,217 6,760
Approved by the Board on 4th September 2002
Statement of total recognised gains and losses
for the six months ended 30th June 2002
Six months Year
Six months ended ended
ended 30th June 31st December
30th June 2001 2001
2002 (Restated) (Restated)
Unaudited Unaudited Audited
£'000 £'000 £'000
Profit for the period attributable
to shareholders 7,024 7,662 12,146
Currency adjustments 3 90 132
Total recognised gains and losses for the period 7,027 7,752 12,278
Prior year adjustment (see Note 7) 2,018
Total gains and losses recognised 9,045
since the last annual report
Reconciliation of movements in shareholders' funds
for the six months ended 30th June 2002
Six months Year
Six months ended ended
ended 30th June 31st December
30th June 2001 2001
2002 (Restated) (Restated)
Unaudited Unaudited Audited
£'000 £'000 £'000
Profit for the period attributable
to shareholders 7,024 7,662 12,146
Dividends (4,149) (3,618) (9,422)
Retained profit for the period 2,875 4,044 2,724
Currency adjustments 3 90 132
Shares issued 82 9 14
Premium on shares issued 13,011 1,248 1,941
Goodwill on disposal previously eliminated
against reserves - 186 711
Movement in relation to the Share Incentive Plan (197) - (306)
Net addition to shareholders' funds 15,774 5,577 5,216
Opening shareholders' funds 77,447 72,231 72,231
Closing shareholders' funds 93,221 77,808 77,447
Consolidated cash flow statement
for the six months ended 30th June 2002
Six months Six months Year
ended ended ended
30th June 30th June 31st December
2002 2001 2001
Unaudited Unaudited Audited
£'000 £'000 £'000
Net cash inflow from operating activities 20,969 111,465 160,146
Taxation
- UK corporation tax (1,836) (2,737) (7,756)
- Overseas tax (792) (428) (502)
Net cash outflow for taxation (2,628) (3,165) (8,258)
Capital expenditure and financial investments
- Purchase of equity shares - - (5)
- Purchase of investment securities (922,277) (836,308) (1,873,471)
- Proceeds from sale and maturities of 1,726,537
901,107 723,810
investment securities
- Purchase of tangible fixed assets (871) (2,862) (5,331)
- Sale of tangible fixed assets 119 193 358
Net cash outflow for capital expenditure and
(21,922) (115,167) (151,912)
financial investments
Acquisitions and disposals
- Acquisitions of subsidiaries (238) (4,193) (4,193)
- Disposal of regional office - 438 1,092
- Net cash acquired with subsidiary undertakings 141 11 11
Net cash outflow for acquisitions and disposals (97) (3,744) (3,090)
Equity dividends paid (6,042) (5,401) (9,019)
Net cash outflow before financing (9,720) (16,012) (12,133)
Financing
- Issue of shares 659 432 727
Net cash inflow from financing 659 432 727
Decrease in cash in the period (9,061) (15,580) (11,406)
Notes to the accounts
for the six months ended 30th June 2002
1 Basis of preparation
The unaudited interim financial information, which has been approved by the
Board of Directors, has been prepared on the basis of accounting policies set
out in the Group's accounts for the year ended 31st December 2001, with the
exception of the policy in relation to taxation which has been changed to comply
with Financial Reporting Standard ('FRS') 19 'Deferred tax' - see Note 7.
The Group's accounts for the year ended 31st December 2001 have been reported on
by the auditors and delivered to the Registrar of Companies. The report of the
auditors was unqualified and did not contain a statement under section 237(2) or
(3) of the Companies Act 1985
2 Basis of consolidation
The consolidated accounts include the accounts of the Company and its subsidiary
and quasi-subsidiary undertakings made up to 30th June 2002.
Unless otherwise stated, the acquisition method of accounting has been adopted.
Under this method, the results of subsidiary undertakings acquired or disposed
of in the period are included in the consolidated profit and loss account from
the date of acquisition or up to the date of disposal.
3 Goodwill
Purchased goodwill (representing the difference between the fair value of the
consideration given and any associated costs and the fair value of the separable
net assets acquired) arising on consolidation in respect of acquisitions before
1st January 1998, when FRS 10 'Goodwill and intangible assets' was adopted, was
written off to reserves in the year of acquisition. When a subsequent disposal
occurs, any related goodwill previously written off to reserves is written back
through the profit and loss account as part of the profit or loss on disposal.
Purchased goodwill arising on consolidation in respect of acquisitions since 1st
January 1998 is capitalised.
Goodwill is amortised to nil by equal instalments over its estimated useful life
as follows:
- investment management businesses 8-10 years
- trust businesses 20 years
On the subsequent disposal or termination of a business acquired since 1st
January 1998, the unamortised amount of any related goodwill is taken into
account in calculating the profit or loss on disposal or termination.
4 Investments
The Group has a holding of 2,000,000 shares in London Stock Exchange plc which
is included in the balance sheet at a cost of £2. The market value of the
holding at 30th June 2002 was £8,230,000.
5 Acquisitions
On 3rd April 2002, the Group acquired a number of UK based companies engaged in
the introduction of discretionary investment management or trust clients. The
total consideration of £13,390,757 (including acquisition costs) was satisfied
by the issue of 1,482,256 new ordinary shares of 5p each at 817.6p and the issue
of three year unsecured loan notes totalling £1,034,005.
The analysis of the consideration paid and the net assets acquired is as
follows:
Total
£'000
Consideration paid
Acquisition costs 238
Issue of new ordinary shares of 5p 12,119
Unsecured loan notes 2005 1,034
Total consideration 13,391
Net assets acquired
Loans and advances to banks 141
Accrued income and prepayments 86
Total assets 227
Liabilities (23)
Net assets on acquisition date 204
Fair value adjustments -
Adjusted net assets acquired 204
Goodwill arising on acquisition 13,187
6 Operating income
Six months Six months Year
ended ended ended
30th June 30th June 31st December
2002 2001 2001
£'000 £'000 £'000
Gross operating income
- Interest receivable 10,288 11,327 23,172
- Dividend income 11 31 125
- Fees and commissions receivable 39,777 36,388 70,667
- Other operating income 618 375 836
50,694 48,121 94,800
Interest payable (4,382) (6,041) (11,774)
Fees and commissions payable (4,241) (2,946) (4,361)
Operating income 42,071 39,134 78,665
All amounts derive from continuing activities.
7 Taxation
FRS 19 'Deferred tax' is mandatory for all periods ending on or after 23rd
January 2002 and has been
adopted in these interim accounts. The new standard requires the following:
- in the absence of a binding agreement to distribute overseas earnings,
deferred tax should only be provided if a dividend has been declared
- accelerated capital allowances or excess depreciation should be provided for
in full as, considered individually, future reversals cannot be avoided.
Previously, the Group's policy was to provide for deferred tax on timing
differences to the extent that they were likely to crystallise in the
foreseeable future. In practice, this resulted in a full provision for
unremitted overseas earnings given the Group's policy to pay overseas earnings
by way of dividend to the UK on a regular basis and the Group took no
recognition of a deferred tax asset in respect of excess depreciation.
Accordingly, in adopting FRS 19, provision on unremitted overseas earnings is
now made only when dividends have been declared by the balance sheet date and
full provision is now made for excess depreciation to the extent that the
deferred tax asset that is created is more likely than not to be recoverable.
Comparative figures have been restated to reflect this change of accounting
policy. The effect of the change has been to increase retained profits and
shareholders' funds in prior periods as set out in the following table:
Retained profit Shareholders' Retained profit Shareholders'
for the six months ended funds as at for the year ended funds as at
30th June 2001 30th June 2001 31st December 2001 31st December 2001
£'000 £'000 £'000 £'000
As previously reported 3,629 75,841 2,258 75,429
Reduction in provision for tax
on unremitted overseas
earnings 343 1,233 322 1,212
Provision for deferred tax
asset in relation to excess
depreciation 72 734 144 806
415 1,967 466 2,018
As restated 4,044 77,808 2,724 77,447
The retained profit for the six months ended 30th June 2002 has been increased
by £175,000 and the shareholders' funds as at 30th June 2002 have been increased
by £2,193,000 as a result of the change in accounting policy.
8 Earnings per ordinary share
The calculation of basic earnings per share is based on profit after taxation
before dividends for each period and the weighted average number of ordinary
shares in issue during the relevant period.
The directors believe that the additional EPS figures provided, which exclude
goodwill amortisation, assist the users of this financial information in
understanding the performance of the Group.
Diluted earnings per share is the basic earnings per share, adjusted for
employee share options remaining capable of exercise and shares issuable under
the Share Incentive Plan, weighted for the relevant periods as set out below:
Six months Six months Year
ended ended ended
30th June 30th June 31st December
2002 2001 2001
Weighted average number of ordinary shares in issue
during the period - basic 37,050,531 36,043,359 36,127,021
Effect of ordinary share options 108,034 320,308 256,222
Effect of dilutive shares issuable under the
Share Incentive Plan 21,435 12,106 10,621
Weighted average number of ordinary shares in issue during the
period - diluted 37,180,000 36,375,773 36,393,864
9 Dividends per share
The directors have declared an interim dividend of 10p (2001: 10p) per share
amounting to £4,149,000 (2001: £3,618,000) payable on 9th October 2002 to
shareholders on the register at the close of business on 13th September 2002.
10 Cash flow statement
(i) Reconciliation of operating profit to net cash inflow from operating
activities
Six months Six months Year
ended ended ended
30th June 30th June 31st December
2002 2001 2001
£'000 £'000 £'000
Operating profit 10,150 10,451 18,259
Profit/(loss) on disposal of tangible fixed assets (48) (45) 48
Depreciation and amortisation 3,018 2,610 6,107
UITF Abstract 17 Share Incentive Plan charge 118 - 98
Provision for bad and doubtful debts 384 38 (53)
Decrease/(increase) in accrued income and prepayments 357 (899) (2,295)
(Decrease)/increase in provision for liabilities
(831) 28 281
and charges
Increase/(decrease) in accruals and deferred income 860 1,822 772
Net cash inflow from trading activities 14,008 14,005 23,217
Net (increase)/decrease in loans and advances to banks and
customers (3,512) 9,490 3,321
Net (increase)/decrease in settlement debtor balances (8,173) (6,452) 17,482
Net increase/(decrease) in settlement creditor balances 8,508 2,518 (6,245)
Net increase/(decrease) in deposits by banks and customer
accounts 9,822 93,632 124,187
Net increase/(decrease) in other liabilities 1,975 (1,573) (2,314)
Net (increase)/decrease in other assets (1,659) (155) 498
Net cash inflow from operating activities 20,969 111,465 160,146
(ii) Analysis of the balances of cash as shown in the balance sheet
At 1st At 30th
January Cash Non-cash Exchange June
2002 flow changes movements 2002
£'000 £'000 £'000 £'000 £'000
Cash and balances at central banks 8,083 (4,236) - (16) 3,831
Loans and advances to other banks repayable -
on demand 27,271 (4,825) - 22,446
Total 35,354 (9,061) - (16) 26,277
(iii) Analysis of changes in financing
Share Share
capital premium
£'000 £'000
Balance at 1st January 2002 1,814 7,277
Cash inflow 6 653
Other movement 76 313
Balance at 30th June 2002 1,896 8,243
(iv) Acquisition of subsidiary undertakings
The effects of the acquisition of a number of UK based companies on 3rd April
2002 are set out in Note 5. The acquired companies did not have any significant
effect on the Group's cashflows for the period.
(v) Major non-cash transactions
The consideration for the purchases of a number of UK based companies included
shares - see Note 5.
11 Segmental information
Gross operating income Profit before taxation
Six Six Year Six Six Year
months months ended months months ended
ended ended 31st ended ended 31st
30th June 30th June December 30th June 30th June December
2002 2001 2001 2002 2001 2001
£'000 £'000 £'000 £'000 £'000 £'000
By class of business:
Investment management
and banking 40,511 38,711 75,162 9,010 8,559 14,526
Trust services 10,183 9,410 19,638 1,140 2,143 4,114
50,694 48,121 94,800 10,150 10,702 18,640
By geographical segment:
United Kingdom 43,398 41,137 80,028 8,874 8,757 14,246
Jersey, Switzerland and other European
countries 6,448 5,888 12,235 897 1,609 2,960
The Americas 848 1,096 2,537 379 336 1,434
50,694 48,121 94,800 10,150 10,702 18,640
Total assets Net assets
Six Year Six Year
Six months ended Six months ended
months ended 31st months ended 31st
ended 30th June December ended 30th June December
30th June 2001 2001 30th June 2001 2001
2002 (Restated) (Restated) 2002 (Restated) (Restated)
£'000 £'000 £'000 £'000 £'000 £'000
By class of business:
Investment management
and banking 502,105 451,937 469,820 64,420 44,271 46,715
Trust services 56,290 49,389 52,022 28,801 33,537 30,732
558,395 501,326 521,842 93,221 77,808 77,447
By geographical segment:
United Kingdom 508,072 453,951 471,978 61,795 50,626 47,054
Jersey, Switzerland and other European
countries 44,784 43,474 45,429 28,469 24,526 27,566
The Americas 5,539 3,901 4,435 2,957 2,656 2,827
558,395 501,326 521,842 93,221 77,808 77,447
Interest receivable Dividend income
Six Six Year Six Six Year
months months ended months months ended
ended ended 31st ended ended 31st
30th June 30th June December 30th June 30th June December
2002 2001 2001 2002 2001 2001
£'000 £'000 £'000 £'000 £'000 £'000
By geographical segment:
United Kingdom 9,812 10,660 22,126 11 31 125
Jersey, Switzerland and
other European countries 447 573 883 - - -
The Americas 29 94 163 - - -
10,288 11,327 23,172 11 31 125
Fees and commissions receivable Other operating income
Six Six Year Six Six Year
months months ended months months ended
ended ended 31st ended ended 31st
30th June 30th June December 30th June 30th June December
2002 2001 2001 2002 2001 2001
£'000 £'000 £'000 £'000 £'000 £'000
By geographical segment:
United Kingdom 32,954 30,073 56,966 610 373 811
Jersey, Switzerland and
other European countries 5,993 5,313 11,351 8 - 1
The Americas 830 1,002 2,350 - 2 24
39,777 36,388 70,667 618 375 836
12 Post balance sheet events
On 8th July 2002 and 15th July 2002, the Group acquired a total of seven
companies engaged in the introduction of discretionary investment management
clients. The total consideration (excluding acquisition costs) of £13,670,000
was paid in a mixture of shares (£8,347,000), loan notes (£4,763,000) and cash
(£560,000).
On 8th August 2002, the Group acquired the business assets and goodwill
associated with the trust company business of Galsworthy & Stones for an initial
consideration of £3,200,000 payable in shares and cash, with deferred
consideration based on profits, payable in 2003.
13 Interim report
The interim report will be sent to registered shareholders on or about 12th
September 2002. Further copies will be available to the public from the
Company's registered office at 159 New Bond Street, London W1S 2UD.
Independent review report by KPMG Audit Plc to Rathbone Brothers Plc
Introduction
We have been instructed by the Company to review the financial information which
comprises the consolidated profit and loss account, consolidated balance sheet,
statement of total recognised gains and losses, reconciliation of movements in
shareholders' funds, consolidated cash flow statement and notes 1 to 13. We have
read the other information, which comprises only the Chairman's Statement,
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' Responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where they
are to be changed in the next annual accounts in which case any changes, and the
reasons for them, are to be disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
Review of interim financial information issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of Group management and applying analytical procedures to the financial
information and underlying financial data and, based thereon, assessing whether
the accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review is substantially less in scope than an audit
performed in accordance with Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly we do not express an audit opinion
on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30th June 2002.
KPMG Audit Plc
Chartered Accountants
8 Salisbury Square
London EC4Y 8BB
4th September 2002
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